Non-linear Time Adjustments in FNMA Appraisals.
In the realm of Fannie Mae (FNMA) appraisals, a "non-linear time adjustment" signifies a nuanced approach by appraisers to modify comparable sale prices in response to market fluctuations. Unlike a straightforward linear adjustment, this method considers the non-consistent percentage changes between the comparable sale date and the appraisal date. It accounts for market accelerations and fluctuations, potentially leading to more substantial adjustments for recent rapid price shifts compared to gradual price growth periods.
Key Insights on Non-linear Time Adjustments in FNMA Appraisals:
1. Market Analysis Importance:
Appraisers must conduct a comprehensive analysis of local market data to pinpoint periods of rapid price shifts, necessitating non-linear adjustments to accurately capture evolving market dynamics.
2. Complexity of Adjustments:
While basic time adjustments rely on simple percentage changes, non-linear adjustments involve intricate calculations that factor in the varying rates of price changes over time.
3. FNMA Guidelines:
FNMA's guidelines mandate appraisers to incorporate time adjustments when market conditions are in flux, allowing for the use of non-linear adjustments when deemed appropriate.
4. Justification in Appraisal Reports:
When employing non-linear time adjustments, appraisers must transparently elucidate their reasoning and provide supporting data in the appraisal report to substantiate the adjustment's validity.
Illustrative Scenario of a Non-linear Time Adjustment:
In this market scenario, prices for detached residential homes in the REIN MLS "South Chesapeake" market area had a significant surge at the beginning of last year that lasted for months before witnessing a sudden fluctuation in the final quarter.
Illustrative Non-linear Time Adjustments:
Comp #1 would warrant a +1.3% time adjustment
Comp #2 would warrant a +2.7% time adjustment
Comp #3 would warrant a +11.8% time adjustment
Sources:
- Underappraisal Disparities and Time Adjustments (Jan 16, 2024) - Federal Housing Finance Agency
- Underutilization of Appraisal Time Adjustments (Jan 8, 2024) - Federal Housing Finance Agency